Novus Hold­ings: To buy or not to buy?

Finweek English Edition - - INSIDE - BY SCHALK LOUW Port­fo­lio Manager at PSG Wealth** ed­i­to­

Novus Hold­ings (pre­vi­ously known as Paarl Me­dia Group) is one of the lead­ing print­ing and man­u­fac­tur­ing groups in Africa. Part of Me­dia24*, Novus of­fers print­ing and t i ssue man­u­fac­tur­ing ser­vices in an ex­ten­sive range of for­mats, sub­strates, fin­ishes and value added ser­vices. The group plans to list on the JSE on 31 March, trad­ing un­der the ticker code NVS.


■ The busi­ness op­er­ates pre­dom­i­nantly within South Africa and is in­creas­ingly tar­get­ing Africa as part of its growth strat­egy.

■ 94% of the group’s fore­casted rev­enue de­pends on the sales of mag­a­zines, re­tail in­serts, cat­a­logues and books (see graphic). The com­pany will fo­cus on di­ver­si­fy­ing its prod­uct of­fer­ings by in­creas­ing its rev­enue in re­lated in­dus­tries, such as tis­sue man­u­fac­tur­ing and spe­cialised pack­ag­ing.

■ Novus prints about 80% of all South African weekly and monthly mag­a­zine ti­tles by vol­ume, in­clud­ing ti­tles such as Drum, YOU and Huisgenoot. It also prints about 40% of all South African news­pa­pers mea­sured by vol­ume, in­clud­ing Sowetan, Daily Sun, Sun­day Times, Rap­port and City Press, and prints and de­liv­ers about 50m ed­u­ca­tional work­books a year for 25 000 schools in the coun­try.

■ Man­age­ment in­tends to adopt a div­i­dend cover of two times HEPS. Based on a fore­casted HEPS of R1.23 and an as­sumed mid-point list­ing price of R13.22, Novus Hold­ings will be trad­ing on a P/E ra­tio of 10.74 and an at­trac- tive div­i­dend yield of 4.65%. On a rel­a­tive ba­sis Novus Hold­ings ap­pears to be of­fer­ing more value than Cax­ton and CTP Pub­lish­ers (Share Code: CAT), trad­ing on a his­toric P/E mul­ti­ple of 15.83 and div­i­dend yield of 3.63% (see ta­ble).

The group’s strong cash gen­er­a­tion (79.6% cash con­ver­sion ra­tio) should be main­tained go­ing for ward, due to in­creased capex spend­ing in prior years. Its low debt lev­els will cre­ate an op­por­tu­nity to en­hance its cap­i­tal struc­ture through gear­ing benefits. High sta r t- up costs and Novus’s spe­cialised skills cre­ate high bar­ri­ers to en­try in the print­ing busi­ness. Novus also has a strong man­age­ment team that will con­tinue to make ac­cre­tive ac­qui­si­tion go­ing for­ward.


■ Rand weak­ness: a large per­cent­age of the com­pany’s in­put costs re­sults from the im­port of pa­per, which is priced in for­eign cur­rency. The com­pany will try to mit­i­gate this risk by hedg­ing its ex­po­sure and ad­just­ing sell­ing prices.

■ Po­lit­i­cal, so­cial and eco­nomic con­di­tions in emerg­ing mar­kets: risks re­lat­ing to strike ac­tions and South Africa’s in­con­sis­tent elec­tric­ity sup­ply could af­fect profit mar­gins. This is ex­pected to hurt GDP go­ing for­ward. Novus will fo­cus on ex­pand­ing its busi­ness in other Sub-Sa­ha­ran coun­tries, where eco­nomic growth is more ro­bust.

■ Digi­ti­sa­tion will put fur­ther pres­sure on the print­ing in­dus­try.

We be­lieve that Novus of­fers great value and we would rec­om­mend that in­vestors ac­cu­mu­late Novus shares be­low R14 a share.

* Finweek is part of the Me­dia24 sta­ble and a client of Novus. **The opin­ions ex­pressed in this ar­ti­cle are the opin­ions of the writer and not nec­es­sar­ily those of PSG and do not con­sti­tute ad­vice.

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